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Author: 


Brown,  Theodore 


Title: 


Foreign  trade 


Place: 


New  York 


Date: 


[1921] 


MASTER   NEGATIVE  « 


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ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


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Brown,  Theodore  H. 

...  Foreign  trade,  by  Theodore  H.  Brown  ...     New 
York,  Philadelphia,  Ija  Fayette  institute,  inc.  [*'1921] 

38  p.    25i*". 

At  head  of  title:  Lecture  text. 


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1.  U.  S. — Comm.       i.  Title. 

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Assiatant  Professor  of  Foreign  Trade 


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THE  NATURE  OF  FOREIGN  TRADE 

In  many  respects  the  selling  of  goods  in  a  foreign  country  involves 
problems  similar  to  those  which  may  appear  in  the  selling  of  goods  in  a 
domestic  market.  The  merchant  finds  that  in  foreign  trade  he  must  over- 
come not  only  the  usual  domestic  obstacles  which  require  his  personal 
attention  and  energy,  but  also  new  difficulties  in  the  way  of  foreign  laws, 
customs  duties,  differences  in  languages  as  well  as  habits  and  ideas  which 
are  entirely  strange  to  him.  Solving  these  new  difficulties  involves  no 
small  amount  of  patience  and  work  and  an  infinite  amount  of  care.  While 
distance  may  sometimes  lend  enchantment,  the  export  merchant  finds 
that  the  distant  foreign  market  with  its  comparatively  slow  means  of  com- 
munication may  lead  to  serious  consequences  in  case  of  misunderstanding. 


COrVRIOHT   1921 

LA  rAYrrTB  iNarriTUTK.  inc. 


PREPARING  FOR  FOREIGN  TRADE 


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In  organizing  a  department  for  foreign  trade  it  is  essential  that  someone 
be  detailed  to  give  his  exclusive  attention  to  the  work  of  the  export  depart- 
ment. This  does  not  always  involve  at  first  a  large  and  complicated  organ- 
ization with  a  large  force  of  clerks  and  stenographers,  but  it  does  involve 
even  at  first,  the  whole  attention  of  a  least  a  single  man,  together  with 
enough  clerks  to  handle  the  documentary  routine.  If  the  manufacturer 
desires  to  invest  a  considerable  sum  in  his  export  business,  it  is  unquestion- 
ably the  best  thing  for  him  to  secure  the  services  of  a  man  who  has  had 
some  experience  in  export  work.  But  in  numbers  export  managers  are  far 
less  than  the  demand.  They  consequently  can  ask  and  do  receive  high 
salaries.  If  a  man  of  this  sort  is  hired  as  head  of  the  export  department, 
the  probability  is  that  the  manufacturer  will  secure  a  satisfactory  foreign 
trade  at  a  date  earlier  than  he  would  otherwisie. 

In  many  firms  there  has  been  adopted  the  plan  of  advancing  some 
young  man  already  connected  with  the  company  to  the  position  of  export 


8 


FOREIGN     TRADE 


manager.  He  may  be  either  advanced  from  the  domestic  sales  force  or 
taken  from  some  other  position.  If  he  has  ability  and  energy  there  is  no 
reason  why  such  an  arrangement  should  not  be  entirely  satisfactory.  Many 
of  the  younger  men  connected  with  various  firms  in  export  work  have  been 
advanced  to  the  position  of  export  manager  in  this  way.  Such  a  manager 
should  not  have  hfe  time  taken  up  by  petty  routine  details  but  should  have 
his  time  to  develop  his  knowledge  of  foreign  markets  and  foreign  commerce 
so  that  he  can  solve  the  more  difficult  problems  in  the  most  efficient  manner. 

It  is  probably  the  best  plan  for  a  company  beginning  to  organize 
its  foreign  trade  to  organize  its  foreign  department  along  the  lines  of  a 
clerical  staff  taking  care  of  the  necessary  details  peculiar  to  foreign  com- 
merce. If  this  is  done  the  export  department  will  be  able  to  co-operate 
with  the  other  departments  already  organized  in  the  factory  so  as  to  advise 
them  concerning  those  details  and  changes  which  are  necessary  to  conform 
with  foreign  trade  practices.  Thus,  the  export  manager  may,  for  example, 
discuss  with  the  packing  department  the  particular  needs  arising  in  packing 
the  product  of  the  factory  for  export,  or  he  may  co-operate  with  the  credit 
department  so  that  the  credit  department  can  take  up  and  carry  on  the 
details  of  the  foreign  credits. 

METHODS  OF  REACHING  A  FOREIGN  MARKET 

We  will  suppose  that  the  export  department  has  been  organized  accord- 
ing to  a  plan  which  best  fits  in  with  the  plan  of  the  organization  of  the  factory 
and  that  the  question  now  before  the  management  is  to  decide  upon  the 
means  of  selling  the  goods  in  the  market.  Before  we  begin  a  discussion 
of  the  various  methods  at  the  present  tim.e  employed  it  should  be  pointed 
out  that  goods  have  to  be  sold  in  the  foreign  market  in  just  the  same  sense 
that  they  have  to  be  sold  in  the  domestic  market.  No  exporter  can  afford 
to  imagine  that  after  he  has  freely  sown  literature  in  the  way  of  letters  and 
catalogues  in  a  foreign  market,  all  that  is  necessary  for  him  to  so  is  to  send 
a  man  into  the  market  to  reap  the  harvest. 


Tl 


FOREIGN     TRADE 


The  first  essential  in  properly  planning  the  campaign  is  a  thorough 
and  complete  study  of  the  commercial  geography  of  the  world.  The  Ameri- 
can boy  has  been  educated  with  altogether  too  little  emphasis  on  the  study 
of  the  commercial  geography  of  the  world.  In  foreign  trade  it  is  not  only 
necessary  to  know  the  geographic  positions  of  the  chief  countries  of  Europe 
or  of  Asia  or  to  know  in  a  general  way  where  London  or  Paris  or  Berlin 
may  happen  to  be  located,  but  also  to  know  such  things  as  the  customs  and 
the  habits  and  the  climate  of  the  people  in  the  Dutch  East  Indies  or  Argen- 
tina or  Venezuela.  The  export  manager  must  be  familiar  not  only  with 
the  names  of  the  well-known  capitals  of  Europe  but  also  with  the  names, 
location,  and  trade  passing  through  such  ports  as  Signapore,  Pernambuco, 
or  Columbo.  He  must  know,  for  example,  that  in  some  Latin-American 
countries  the  costal  strip  of  land  has  one  climate  while  quite  a  difl:*erent 
climate  is  to  be  found  in  the  inland  cities.  He  must  be  familiar  with  the 
habits  and  with  the  customs  of  the  various  countries  in  which  he  expects 
to  trade  and  must  be  prepared  to  conform  and  plan  his  sales  campaign 
with  reference  to  such  habits  and  customs.  He  must  be  very  sure  in  addi- 
tion to  this  of  the  means  of  transportation  within  the  country  between 
the  larger  cities,  for  if  the  transportation  is  too  difficult  the  sales  campaign 
may  be  so  expensive  that  it  will  result  in  a  failure.  After  having  under- 
stood the  geography  of  the  various  parts  of  the  world,  the  export  manager 
may  then  proceed  to  divide  up  the  map  of  the  world  for  the  sales  campaign 
according  to  some  plan  which  to  him  may  seem  to  be  the  most  efl'ective. 
The  very  fact  that  he  has  a  clear  and  thorough  understanding  of  the  com- 
mercial geography  of  the  world  will  be  his  best  guide  in  this  work. 

With  this  done  he  must  next  consider  what  methods  he  will  prefer 
in  getting  his  goods  sold  in  any  particular  country.  There  are  three  com- 
mon ways  of  selling  goods  in  a  foreign  country  direct  from  manufacturer 
to  purchaser.  They  are:  through  salesmen,  through  foreign  agents,  and 
through  a  branch  house. 

Before,  however,  any  of  these  methods  are  adopted,  there  should  be 


.Jl^  M 


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FOREIGN     TRADE 


an  advertising  campaign  conducted  in  those  new  markets  in  which  it  is 
desired  to  first  introduce  the  product  of  the  firm.  Just  as  in  the  domestic 
market  a  demand  must  be  created  for  a  particular  Hne  of  goods>  so  in  the 
foreign  market  a  demand  must  be  created  in  advance  of  sending  agents 
into  the  foreign  field  to  actually  sell  the  goods.  No  sane  merchant  in  this 
country  would  think  for  a  minute  of  placing  an  order  for  goods  with  a 
salesman  on  his  first  call  from,  say,  England  when  he  knew  nothing  of  the 
English  firm  nor  of  the  particular  brand  of  goods  which  the  salesman  rep- 
resented nor,  possibly,  even  of  the  uses  of  those  goods  if  they  happened 
to  be  some  novelty.  So  the  export  manager  must  prepare  his  foreign  market 
by  advertising  matter,  and  by  correspondence.  He  must  create  the  demand 
for  his  goods  so  there  will  be  possible  customers  who  will  show  signs  of  inter- 
est. In  making  up  catalogues  or  literature  for  foreign  distribution,  esi>ecially 
if  it  is  in  a  foreign  language,  great  care  should  be  taken  that  the  reading  mat- 
ter is  in  a  form  which  can  be  understood  by  the  foreign  customer;'-  fn  any 
language  there  are  many  terms  and  phrases  which  acquire  special  signifi- 
cance and  which,  if  translated  literally  into  a  foreign  language,  would  have 
little  or  no  meaning.  In  the  preparation  of  letters  and  catalogues  in  foreign 
languages  expert  advice  from  men  who  know  the  language  and  understand 
the  customs  of  a  particular  foreign  country  will  be  found  far  cheaper  in  the 
end  than  a  questionable  experiment.  Customers  in  foreign  markets  are 
often  persons  of  taste  and  discrimination  and  care  in  getting  out  varied 
and  attractive  literature  will  be  found  to  be  repaid  a  hundredfold.  The 
attack  on  a  foreign  market  should  be  planned  with  all  the  skill  and  care 
possible  so  that  it  may  be  as  varied  and  as  attractive  as  the  export  manager 
can  make  it. 

Suppose  now  that  the  campaign  has  been  completed  and  the  literature 
sent  out  has  attracted  some  comments  and  favorable  inquiry.  What 
method  is  to  be  employed  in  developing  the  market?  Unquestionably 
at  first  it  will  be  wise  to  send  a  salesman  out  to  do  this.  The  salesman  will 
be  selected  with  a  view  to  developing  this  particular  market,  which  of  course 
should  not  cover  an  impossibly  large  territory.    Naturally  he  must  be  able 


6 


*■       • 


•  "^  ♦ 


- 


FOREIGN     TRADE 


to  make  himself  personally  agreeable  to  possible  customers.  He  should 
be  a  man  who  has  at  least  travelled  extensively  in  the  market  he  is  to  develop 
in  case  he  has  not  lived  there  for  a  considerable  length  of  time.  Naturally 
he  must  also  possess  the  qualities  of  a  salesman.  Such  men  being  com- 
paratively scarce  they  naturally  ask  and  receive  excellent  salaries.  The 
firm  must  also  be  prepared  to  make  liberal  allowance  in  the  way  of  travelling 
expenses,  for  travelling  is  expensive  in  many  foreign  countries  and  the 
salesman  must  live  in  a  way  to  command  the  respect  of  possible  clients. 
A  small  allowance  in  the  way  of  travelling  expenses  may  indicate  to  possible 
clients  that  the  firm  is  not  really  interested  in  promoting  the  particular 
market  but  simply  trying  to  develop  some  orders  to  take  care  of  surplus 
production.  The  salesman-investigator  may  develop  some  business  which 
it  may  seem  worth  while  to  leave  in  his  care  for  future  development  on 
future  trips  to  this  market,  or  if  the  preliminary  correspondence  and  adver- 
tising has  been  particularly  successful  or  the  salesman's  eflForts  have  been 
satisfactory,  it  may  be  desirable  to  continue  the  connection  with  the  market 
by  one  of  the  other  methods. 

Another  method  which  may  be  followed  is  the  assigning  of  a  market 
to  a  foreign  agent.  The  investigating  salesman  may  have  reported  that  this 
is  the  best  method  for  developing  a  particular  market  because  it  secures 
the  help  of  a  resident  sales  force  thoroughly  familiar  with  the  country 
in  which  the  goods  are  to  be  sold.  In  case  it  is  decided  that  this  is  the  best 
method  of  selling  the  goods  in  that  market  care  should  be  taken  that  the 
agent  does  not  carry  and  does  not  intend  to  carry  a  competing  line  of  goods 
of  another  manufacturer.  Cases  have  been  known  in  which  foreign  agents 
have  secured  exclusive  rights  for  a  product  in  a  particular  territory  for  the 
simple  purpose  of  excluding  possible  competition.  In  some  cases  it  has  been 
found  that  exclusive  rights  to  a  particular  territory  have  been  given  to  some 
agent  and  that  then  the  market  has  been  sold  with  the  same  goods  through 
one  of  the  houses  connecting  the  exporter  directly  with  the  manufacturer. 
Care  should  be  taken  that  this  does  not  happen.  Once  a  foreign  agent  has 
been  selected,  the  manufacturer  has  no  right  to  suppose  that  his  responsi- 


FOREIGN  TRADE 


FOREIGN  TRADE 


bility  in  the  matter  has  ceased  and  that  he  can  from  that  time  on  expect 
to  see  this  agent  push  the  sale  of  his  goods.  In  order  that  the  manufacturer 
shall  really  get  as  much  as  possible  out  of  such  an  arrangement  he  must 
stand  back  of  his  agent  encouraging  him  through  correspondence  or  perhaps 
visits  of  his  personal  representative.  The  foreign  agent  must  be  made  to 
feel  that  he  is  a  vital  part  of  a  selling  organization  and  must  never  be  allowed 
for  an  instant  to  get  the  idea  that  he  is  not  directly  and  vitally  tied  up  with 
the  fortunes  of  the  manufacturer. 

In  a  developed  market  it  is  undoubtedly  true  that  the  branch  house 
is  the  most  satisfactory  from  many  points  of  view  but  it  is  also  true  that  it  is 
probably  the  most  expensive  method  of  doing  foreign  trade.  Once  a  branch 
house  is  established  it  is  almost  impossible  to  withdraw  it  without  serious 
injury  resulting  to  the  trade  in  that  particular  section  of  the  world,  for 
customers  soon  come  to  rely  on  the  branch  house  with  all  its  conveniences. 
When  the  convenience  of  the  branch  house  has  been  withdrawn  they  find 
it  more  difficult  to  obtain  goods  and  supplies.  Consequently  their  good 
feeling  toward  the  manufacturer  is  somewhat  cooled  and  they  may  seek 
other  agencies  in  order  to  secure  the  goods  which  they  may  wish  to  sell. 
The  branch  house  is,  then,  a  means  for  developing  the  market  for  a  large 
corporation.  It  has  been  found  especially  desirable  in  those  corporations 
exporting  machinery  of  various  sorts.  This  is  true  because  the  branch 
house  may  have  on  its  staff  a  number  of  technically  trained  advisers  who 
may  be  called  upon  in  case  of  difficulty  or  in  the  case  of  breakdown  needing 
immediate  attention.  Again,  the  branch  house  is  able  to  keep  on  hand  a 
supply  of  spare  parts.  This  materially  shortens  the  time  during  which 
machinery  may  be  idle  and  in  the  time  of  stress  a  quick  repair  may  be  a 
matter  of  no  small  significance  to  a  customer.  When  a  branch  house  is 
established,  frequent  trips  to  the  home  factory  should  be  planned  for  the 
employees  so  that  they  may  keep  in  touch  with  the  new  goods  that  are  being 
produced,  and  with  the  new  methods  of  producing  them.  In  return  they 
may  give  suggestions  as  to  new  goods  or  give  personal  direction  in  the  case 
of  slight  changes  in  the  goods  which  may  make  them  far  more  desirable  in 
the  markets  where  they  are  located. 


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If  a  manufacturer  feels  that  he  does  not  care  to  deal  directly  with 
foreign  customers  in  his  sales  campaign,  he  may  resort  to  one  of  the  so- 
called  indirect  methods  for  handling  at  least  a  part  of  his  foreign  trade. 
The  middle  men  who  will  handle  the  export  trade  for  the  manager  are  of 
two  general  types — the  commission  house  and  the  export  merchants.  The 
commission  house  may  be  again  subdivided  into  the  commission  merchant 
proper  and  the  so-called  manufacturer's  export  agent.  Usually  it  is  very 
diflScult  to  distinguish  between  these  various  types  of  business  because 
a  single  house  may  handle  one  or  more  of  them.  However,  for  the  purpose 
of  simplicity  we  will  consider  them  as  three  distinct  kinds  of  export  middle 
men. 

It  may  be  helpful  to  make  first  some  general  remarks  about  export 
houses.  The  importance  of  not  permitting  one  of  these  middle  men  to 
export  goods  into  a  territory  where  the  manufacturer  already  has  an  exclu- 
sive agent  has  been  mentioned  before.  To  prevent  this  it  has  been  known 
that  in  some  cases  manufacturers  have  demanded  from  these  middle  men 
not  only  the  country  of  destination  of  the  goods  which  they  have  ordered, 
but  also  the  identity  of  the  purchaser.  Some  of  these  manufacturers  have 
been  able  to  do  this  and  yet  retain  the  good  will  of  the  export  house.  It  is 
obvious  that  here  lies  the  great  problem  in  this  particular  question,  namely, 
the  protection  of  the  exclusive  agent  in  a  foreign  field  and  at  the  same 
time  the  retention  of  the  good  will  of  the  export  house.  It  if  comes  to  an 
actual  choice  between  the  two  there  is  no  doubt  but  that  the  manufacturer 
in  general  will  be  better  off  in  protecting  his  exclusive  agent  as  it  is  known 
that  this  is  probably  a  far  more  effective  method  of  selling  in  a  foreign 
market  than  through  an  export  house.  If  a  manufacturer  should  happen 
to  discover  that  the  goods  have  been  sold  in  an  exclusive  territory  a  prompt 
apology  accompanied  by  the  proper  commission  should  be  made  to  the 
exclusive  agent. 

In  selecting  a  middle  man  great  care  should  be  taken  to  discover 
whether  a  certain  export  house  can  handle  the  manufacturer's  goods  in  a 


9 


FOREIGN    TBADB 


particular  foreign  field.  An  export  house  may  rate  first  in  a  certain  foreign 
market  and  yet  be  rated  fourth  or  fifth  in  another  market  that  the  manu- 
facturer may  be  equally  eager  to  develop.  There  is  also  the  choice  of  an 
export  house  doing  busmess  only  in  one  particular  line  in  which  they  may 
specialize  or  of  a  house  doing  a  very  general  business.  Therefore  there  is 
need  of  emphasis  that  the  selection  of  an  export  house  for  a  particular 
field  and  a  particular  commodity  requires  very  careful  personal  investigation. 

There  is  another  advantage  to  the  manufacturer  in  dealing  through 
a  middle  man.    This  is  the  advantage  of  dealing  with  a  company  here  in 
the  United  States.     While  the  manufacturer  must  always  sLd  behind 
his  wares  the  important  task  of  shipment  and  the  collection  of  payment 
IS  taken  by  the  export  house.     In  case  of  dispute  or  difficulties  nLing 
legal  advice    there  is  the  advantage  of  having  to  deal  with  a  domestic 
company  rather  than  a  foreign  firm.     The  larger  export  houses  are  in  a 
very  strong  financial  position  because  their  large  business  and  shipment 
of  goods  to  all  parts  of  the  world  go  to  strengthen  their  credit  standing. 
It  would  be  almost  impossible  for  any  one  of  these  larger  houses  to  have  all 
of  Its  foreign  business  fail  at  any  one  time.    The  result  of  this  is  that  the 
export  house  can  probably  obtain  better  banking  accommodations  at  lower 
cost  than  the  manufacturer  doing  a  small  export  trade. 

The  work  of  the  export  house  has  become  so  important,  over  fifty  per 
cent  of  American  exports  being  handled  through  these  houses,  that  they 
have  developed  a  very  comprehensive  organization  in  foreign   markets 
Thus  the  export  house  may  have  its  salesmen,  foreign  agencies  or  branch 
trarVrS       '"'^  ^       ''  ^"""  *^'  manufacturer  handling  its  forei^ 

Turning  now  to  the  particular  work  of  the  various  types  of  houses 
^t  us  discuss  the  commission  merchant  first.     The  commission  merchant 
may  handle  whatever  business  comes  his  way.  Usually  he  does  not  act  as  a 
direct  and  speciaJ  agent  of  the  manufacturer.    In  this  phase  of  his  work 


10 


FOREIGN     TRADE 


he  is  not  so  important  to  the  manufacturer  who  wishes  to  develop  the  foreign 
field.  However,  the  commission  house  does  perform  a  very  important  func- 
tion for  the  importer  in  a  foreign  field.  The  importer  may,  for  example 
desire  a  number  of  small  shipments  from  several  manufacturers  in  this 
country.  To  deal  directly  with  each  manufacturer  for  each  of  these  ship- 
ments would  not  be  profitable  as  the  charges  for  freight  and  other  overhead 
expenses  are  out  of  proportion  to  the  size  of  the  shipment.  In  such  case 
the  foreign  importer  can  communicate  with  the  commission  house  who  will 
order  the  separate  articles  desired,  collect  them  into  single  shipment 
and  forward  them  under  one  bill  of  lading.  Many  times  the  commission 
house  or  indent  agent  as  he  is  known  when  acting  in  this  capacity,  will 
receive  a  general  order  from  his  foreign  correspondent  which  leaves  the 
details  to  the  taste  and  judgment  of  the  indent  agent  to  determine.  In 
such  a  position  the  indent  agent  acts  in  a  confidential  capacity  as  he  has  a 
part  in  the  selection  of  goods.  Such  a  procedure  is  established  only  after 
many  transactions  have  been  carried  through  on  a  more  exact  basis.  When 
acting  in  such  a  capacity  the  indent  agent  receives  for  his  work  a  small  com- 
mission from  the  buyer.  The  commission  house  may  also  solicit  orders 
on  its  own  account  which  it  may  fill  from  the  goods  made  by  the  manu- 
facturers with  whom  it  is  in  touch.  In  this  connection  the  work  of  the 
export  house  as  a  commission  agent  is  identical  with  the  work  of  the  export 
house  which  may  be  done  as  a  manufacturer's  export  agent.  The  funda- 
mental idea  of  the  commission  house,  however,  is  to  serve  as  indent  agent 
for  the  importer. 

Just  as  the  idea  of  the  commiss  jn  house  was  to  receive  and  execute 
orders  from  the  importers  abroad,  so  the  idea  of  the  manufacturer's  export 
agent  is  an  export  house  doing  a  commission  business  and  acting  for  the 
manufacturer  in  his  export  business.  It  is  in  connection  with  this  type  of 
house  that  the  manufacturer  needs  to  take  special  care  in  selecting  his 
representatives,  for  if  as  is  usual  the  export  house  handles  several  lines  of 
goods,  the  manufacturer  must  make  certain  not  only  that  he  is  able  to  serve 
him  in  a  particular  territory,  but  also  that  the  export  agent  handles  a  non- 


11 


FOREIGN     TRADE 


competing  line  of  goods.  While  this  is  not  always  true,  it  is  obviously  the 
part  of  wisdom  for  the  manufacturer  to  make  certain  that  he  does  not 
incur  the  risk.  In  dealing  through  an  export  agent  the  manufacturer 
naturally  pays  the  commission  on  sales  which  are  made. 

The  advantage  of  the  commission  house  is  that  the  manufacturer 
can  do  business  in  small  quantities  at  a  rate  far  cheaper  than  he  could  do 
it  himself.  In  addition  to  this  the  commission  house  assumes  all  care  in 
the  question  of  necessary  documents  in  making  the  shipment  of  goods.  The 
manufacturer,  however,  must  not  suppose  for  a  minute  that,  because  he 
has  given  his  business  in  a  certain  territory'  to  an  export  house,  his  responsi- 
bility for  that  work  is  finished.  Continued  co-operation  in  the  way  of  sug- 
gestion, advice,  correspondence,  and  advertising  is  continually  necessary 
if  the  maximum  results  are  to  be  obtained.  Thus  one  export  manufacturer 
co-operated  with  a  commission  house  in  the  following  way:  "As  manager 
of  the  export  department,  I  felt  that  my  first  duty  was  to  get  trial  orders. 
That  was  the  essential  point.  When  the  orders  came  the  next  important 
thing  was  to  get  the  money,  and  I  then  went  to  the  export  houses  who 
were,  generally  speaking,  doing  business  in  the  particular  markets  from  which 
the  orders  had  come.  I  said  to  them,  'Here  is  an  order  for  $500,  or  $1,000, 
or  $2,000  worth  of  my  material.  Will  you  finance  it.?  And  what  will  you 
charge  us  .5^'  There  never  has  been  a  case,  whether  the  customer  said  ship 
the  goods  on  open  account,  or  on  time  draft,  or  sight  draft,  attached  bill  of 
lading,  that  I  have  not  been  able  to  find  an  export  house  that  would  finance 
the  business  for  a  relatively  small  amount  of  money.  I  then  wrote  the  cus- 
tomer and  thanked  him  for  his  order,  saying  that  our  good  friends,  Messrs. 
So-and-so,  who  were  acting  as  our  representatives  or  something  of  that 
sort,  would  forward  his  shipment,  and  that  he  would  receive  his  goods 
through  them;  that,  further,  our  company  would  pay  any  charge  they  made 
for  their  services,  so  that  the  goods  would  cost  him  no  more  than  if  he  had 
bought  them  direct  from  us,  but  with  the  fine  point  that  we  would  get  our 
money  within  ten  days,  cash  in  New  York.'*  (Proceedings  of  the  Fourth 
National  Foreign  Trade  Convention.) 


% 


« 

.1 


FOREIGN     TRADE 


The  export  merchant  handles  the  foreign  transaction  on  a  somewhat 
diflferent  basis  from  either  of  the  two  classes  of  houses  just  mentioned. 
The  commission  house  forwards  goods  either  on  the  order  of  a  foreign 
importer  or  at  the  request  of  a  domestic  manufacturer.  He  is,  in  other  words, 
simply  a  commission  middle  man.  The  export  merchant,  however,  pur- 
chases the  goods  direct  for  his  own  account  and  then  seeks  to  sell  them  in 
his  foreign  branches  just  as  any  merchant  who  takes  complete  title  to  goods 
may  seek  to  sell  them  in  open  market.  The  export  merchant  is  worth 
while  to  deal  with  provided  he  does  not  conflict  with  any  exclusive  agree- 
ments already  made  with  other  individuals.  From  the  manufacturer's 
point  of  view,  he  is  very  satisfactory  to  deal  with  as  the  manufacturer's 
responsibility  entirely  ceases  as  soon  as  the  goods  are  out  of  his  hands. 
On  the  other  hand  the  manufacturer  must  not  expect  the  merchant  to  carry 
on  a  sales  campaign  in  his  favor. 

The  difficulties  that  the  manufacturer  must  face  in  dealing  through 
these  indirect  agencies  have  been  given  in  the  statements  already  made, 
that  is,  the  manufacturer  must  face  the  difl5culty  of  competition  with  his 
already  appointed  exclusive  agents;  he  must  pick  out  with  great  care  those 
export  houses  which  can  handle  effectively  the  trade  within  the  particular 
field  he  desires  to  develop;  and,  in  addition  he  must  realize  that  the  export 
house  handling  more  than  one  of  the  above  types  of  business  is  generally 
interested  in  serving  the  foreign  buyer  and  not  the  manufacturer. 

While  the  freight  forwarder  is  not  a  buying  or  a  selling  agency  for  the 
promotion  of  foreign  trade,  he  is  a  means  for  getting  a  shipment  of  goods 
over-seas  and  consequently  a  brief  discussion  of  his  work  is  introduced  here. 
The  work  of  the  freight  forwarder  is  to  take  from  the  shoulders  of  the 
exporter  all  of  the  care  and  detail  in  actually  getting  the  goods  over-seas 
or  into  a  foreign  country.  If  an  order  is  received,  say  by  a  manufacturer 
inland,  an  inquiry  is  addressed  to  a  freight  forwarder  as  to  what  he  can  do. 
Freight  forwarders  have  blanks  on  which  may  be  filled  out  full  descriptions 
of  goods,  and  instructions  as  to  what  is  wanted.    They  will  in  turn  advise 


1« 


18 


FOREIGN     TRADE 


the  manufacturer  in  regard  to  all  of  the  details  of  preparing  the  shipment 
of  goods.  The  freight  forwarder  will  receive  the  goods  at  the  seaport  from 
the  railroad  company  and  will  take  care  of  all  the  necessary  routine  in  getting 
the  goods  on  the  proper  steamer  to  be  forwarded  to  their  destination,  send- 
ing back  to  the  manufacturer  the  proper  documents  which  are  discussed 
below.  In  case  of  small  shipments  the  freight  forwarder  will  collect  a  num- 
ber destined  for  the  same  port  and  will  forward  them  all  together.  In  this 
way  there  is  usually  a  saving  in  freight  charges.  For  a  manufacturer  just 
starting  in  export  trade  the  assistance  of  a  freight  forwarder  is  exceedingly 
valuable  as  the  cost  of  service  is  comparatively  small  and  the  efficiency 
very  high.  Any  manufacturer  wishing  to  begin  in  a  small  way  would  do 
well  to  look  up  one  of  the  freight  forwarding  concerns  that  have  offices  in 
New  York  to  take  care  of  his  shipments  at  least  during  the  first  part  of  his 
over-seas  business. 

THE  PROCESS  OF  MAKING  THE  SHIPMENT 

Just  as  in  a  domestic  shipment  of  goods  there  is,  in  export  trade,  a 
series  of  documents  which  follow  the  goods  through  a  certain  routine  until 
those  goods  have  actually  been  received  by  the  importer  abroad.  A  few 
general  remarks  in  regard  to  documents  may  not  be  out  of  place  at  this 
point.  Two  defects  too  often  characterize  the  documentary  routine  of  the 
domestic  shipment.  These  are  abbreviations  which  may  be  misleading, 
and  carelessness,  which,  although  unpardonable  in  domestic  trade,  is  almost 
suicidal  in  foreign  trade.  Too  much  emphasis  can  not  be  placed  on  the  neces- 
sity that  documents  used  in  foreign  trade  must  be  complete  with  no  mislead- 
ing abbreviations  and  that  they  must  be  absolutely  accurate.  A  mis- 
leading abbreviation  or  a  careless  inaccuracy  may  cost  the  exporter  not  only 
inconvenience  but  also  money  in  the  way  of  fines,  and  the  loss  of  the  confi- 
dence and  the  trade  of  his  foreign  client. 

Let  us  suppose  that  the  manufacturer  has  sent  out  advertising  matter 
and  that  there  comes  an  inquire  from  some  importer  in  a  foreign  country 


^     ^ 


II 

1 


■  i 


.1 

I 

I! 


FOREIGN     TRADE 


askmg  for  lowest  terms  on  certain  goods.  There  are  several  different 
bases  for  quotmg  terms  and  these  must  be  clearly  understood  by  both 
exporter  and  importer  so  as  to  avoid  any  possibility  of  misunderstanding. 
The  National  Foreign  Trade  Council  has  drawn  up  a  set  of  standard  quota- 
tions for  use  m  export  work.  They  are  so  important  that  they  are  repro- 
duced  in  full  m  the  appendix  so  that  they  may  be  easily  consulted.  Suppose 
that  the  manufacturer  has  made  his  calculations  of  price  and  has  written 
the  importer  making  him  a  quotation  on  the  articles  he  desires,  and  that 
the  importer  writes  or  cables  his  order  for  the  goods.  It  is  now  necessary  to 
prepare  the  goods  for  shipment  and  get  them  over-seas. 

Naturally  the  first  thing  that  must  be  done  is  to  prepare  the  goods  for 
shipment.     This  is  an  operation  which  requires  considerably  more  care 
than  the  similar  operation  in  domestic  commerce  as  skillful  planning  in 
regard  to  the  packing  may  save  the  exporter  a  considerable  amount  of 
money.     The  goods  should  be  weighed  before  and  after  being  wrapped 
so  as  to  determine  their  net  and  "legal"  weight  and  also  after  they  are  in 
the  cases.    The  reason  for  this  is  that  net  legal  and  gross  weight  may  be 
wanted  for  customs  purposes.    There  are  opportunities  here  to  save  money 
on  customs  duties  in  certain  countries  by  a  proper  choice  of  size  and  weight 
of  cases,  taking  advantage  of  the  lower  rate  on  net  or  legal  or  gross  weight 
a^  may  happen.    It  is  obvious  that  this  is  one  of  the  questions  that  a  pro- 
fessional export  or  freight  forwarder  can  best  answer.       Not  only  in  the 
weighing  but  also  in  the  packing  is  it  important  that  the  goods  receive 
more  care  than  is  usual  in  the  domestic  trade.    Anyone  who  has  watched 
goods  bemg  loaded  on  steamer  at  some  port  will  understand  the  necessity 
for  properly  constructed  cases.     In  loading  goods  a  number  of  cases  and 
packages  are  piled  together  in  the  middle  of  a  net  sling  and  start  upward 
with  a  jerk  when  lifted  by  the  ship's  tackle.    The  case  containing  the  goods 
m  question  may  be  at  the  center  or  may  be  on  the  outside  of  this  collection 
and  may  receive  very  heavy  strains  from  an  irregular  shaped  package, 
bale  or  case  which  ha^  been  placed  next  to  it.     Once  the  goods  are  lifted 
from  the  dock  it  might  seem  that  the  trouble  was  over  but  the  goods  are 


14 


15 


FOREIGN     TRADE 


*>  ,  '       ^ 


( 


rOREIGN     TRADE 


dropped  into  the  hold  with  a  crash  and  are  then  stowed  away  in  no  gentle 
fashion  by  the  stevedore.    Even  at  sea  there  is  danger  awaiting  the  improper- 
ly packed  goods  as  they  or  adjacent  goods  may  sweat  or  in  a  heavy  sea 
some  of  the  seams  of  the  ship  may  be  opened  and  in  this  way  dampness  or 
sea  water  may  find  its  way  into  the  cases.    It  is  obvious  that  goods  received 
m  a  foreign  port  ruined  beyond  all  hope  of  use  even  though  the  company 
stands  the  loss  means  a  dissatisfied  customer  as  the  customer  in  a  foreign 
market  can  not  have  his  order  refilled  probably  within  several  months 
at  least,  by  which  time  it  may  be  too  late  to  be  of  use.     The  treatment 
received  by  the  goods  while  being  placed  on  board  must  be  duplicated  when 
the  ship  unloads  at  a  foreign  port.    Goods  liable  to  damage  through  water 
should  consequently  be  placed  in  water-tight  wrappings  and  also  some- 
times  m  metal-lined  cases.     Machinery  liable  to  rust  should  be  covered 
with  grease,  known  as  *' slush."     Not  only  must  the  goods  be  securely 
packed  to  prevent  damage  but  they  must  also  be  packed  to  prevent  pilfer- 
age.   It  has  been  truly  remarked  that  the  function  of  the  packing  case  is 
two-fold:   the  prevention  of  damage  to  the  goods,  and  also  of  loss  through 
pilferage.     It  is  not  definitely  known  at  just  what  point  in  the  shipment 
of  goods  the  pilferage  takes  place.    It  may  be  on  the  truck  before  the  goods 
are  delivered  to  the  steamship  company;    it  may  be  while  the  goods  are 
lying  in  the  warehouse  waiting  to  be  loaded;   it  may  be  that  the  pilferage 
takes  place  in  the  hold  of  the  ship  while  the  goods  are  on  board  the  steamer. 
The  fact  IS,  however,  that  pilferage  does  take  place  on  a  large  scale  and  that 
thieves  are  exceedingly  clever.     Goods  are  withdrawn  from  cases,  stones 
substituted  to  give  weight,  and  the  boards  replaced  without  apparently 
showing  any  evidence  of  tampering.     To  prevent  this  sort  of  thing  goods 
should  be  packed  in  tight  cases  made  of  tongue  and  grooved  boards.    After 
the  goods  are  packed  the  top,  bottom  and  sides  should  be  secured  by  iron 
straps  held  by  some  sort  of  safety  nail.     Containers  should  be  as  light  as 
possible  consistent  with  safety.     Yet  it  must  be  remembered  that  cheap 
packing  IS  expensive.    The  packing  also  ought  to  be  adapted  to  the  climate 
and  transportation  facilities  of  the  country  to  which  the  goods  are  to  be 
sent.     Thus  the  goods  which  have  to  be  transported  on  pack  animals  in 


the  rainy  season  of  tropical  country  need  special  care  as  to  waterproofing 
and  as  to  the  size  of  the  packages.  Much  complaint  has  been  heard  in  regard 
to  American  methods  of  packing  but  it  must  be  said  on  the  other  hand 
that  many  concerns  with  a  large  foreign  trade  have  long  had  a  reputation 
for  packing  their  goods  in  a  very  satisfactory  manner.  Such  firms  have 
found  that  attention  to  this  phase  of  their  export  business  pays. 

Another  thing  which  has  to  do  with  the  packing  is  the  marking  of  the 
cases.  It  is  common  practice  in  domestic  trade  to  place  on  the  outside  of 
cases  various  labels  or  marks  which  advertise  and  indicate  their  contents. 
A  moment's  thought  will  show  that  such  advertising  is  not  only  a  waste 
as  obviously  it  will  not  be  understood  in  a  foreign  country  but  that  it  also 
indicates  the  character  of  the  contents  and  so  helps  the  work  of  possible 
thieves.  Mottoes  such  as  *'use  no  hooks,*'  "this  side  up,"  or  "handle  with 
care"  are  superfluous  as  far  as  the  foreign  illiterate  stevedore  is  concerned. 
The  cases  should  bear  some  simple  design  such  as  a  triangle  or  a  square 
with  the  initials  of  the  consignee  or  some  other  letters  easily  picked  out, 
together  with  a  number  which  designates  the  particular  case.  Here  again 
it  is  necessary  to  make  sure  that  the  numbers  are  consecutive  from  one  up 
to  the  last  case  numbered.  The  reason  for  this  is  that  in  some  countries 
the  customs  officials  assume  that  fraud  or  smuggling  is  being  attempted 
if  there  is  no  package  corresponding  to  some  missing  number  in  a  con- 
secutive series.  A  fine  is  likely  to  be  the  penalty  for  such  oversight  on  the 
part  of  the  exporter. 

While  the  goods  are  being  packed  some  of  the  other  documents  may  be 
prepared.  The  first  of  these  is  a  reservation  for  space  on  board  a  particular 
steamer  which  will  get  the  goods  to  their  destination  at  the  desired  time. 
This  is  the  so-called  shipping  permit.  It  states  the  ship  on  which  space  is 
to  be  reserved  and  the  day  and  hour  on  or  before  which  the  goods  must 
be  presented  at  the  dock  for  shipment.  The  goods  will  not  be  received  at 
the  dock,  however,  unless  they  have  been  cleared  through  customs.  At 
present  two  copies  of  the  customs  declaration  must  be  made  out  and  sworn 


16 


17 


FOREIGN  TBAD3: 


FOREIGN  TRADE 


to    .These  are  taken  to  the  custom  house  and  approved:   the  original  is 

TrJ  tl   7-  '"l''*^  ^^r"'"'  ^°P^-  "^  P^^-"**^  "^y  the  exporterTt  the 
wM  1.  K         "'^  T'^'  ^'^  ^"^'^''''y  '^^"^'^^'J-    The  other  documents 

Sk  nfT^-       ''^r?''  .^^  "''^  *'"''  ^^*  t''^  ™"^"''''  i"^"'^'  the  ocean 
bills  of  ladmg,  and  the  msurance  certificates.     The  consular  invoices  are 

usually  necessary-    or  Latin-American  countries  as  well  as  for  some  of  the 

other  countries^  They  must  be  certified  by  the  consul  of  the  foreign  counfy 

m  order  tha    the  goods  be  allowed  to  enter  that  countiy.    Sometimes  c^rtT- 

ficates  are  also  necessaiy  stating  the  average  domestic  price  in  the  country 

of  export  as  well  as  the  export  price  for  the  particular  article  in  question^ 

These  are  anti-dumpmg  certificates   which   are   required   by   the  foreign 

country  to  prevent  the  selling  of  surplus  products  below  cost  within  theTr 

boundaries     Sometimes  certificates  or  origin  are  necessaiy  which  show  in 

what  countiy  the  goods  were  originally  manufactured. 

Of  all  the  shipping  documents  as  might  naturally  be  exnected    the 

Zt"  S* ':"  i  ''"'"^  '^  ''^ '''  '""^  '""^t  ™p-t-t'  Thirn:  doiu! 

ment  which  actualy  represents  the  goods  after  they  have  left  the  hands 
of  the  exporter  until  they  reach  the  importer.  The  bill  of  lading  has  three 
functions:  ,t  is  the  official  receipt  of  the  steamship  companv  for  the  gooT 
It  IS  a  contract  between  the  steamship  company  and  the  ;xporter  for  the 
carriage  of  the  goods  and,  in  addition  it  carries  title  to  the  goods  As  a 
receipt  the  bill  of  lading  says  that  the  goods  described  on  its  faSave  bL 
received  m  apparent  good  order  and  condition.  The  contract  on  the  bill 
of  lading  exempts  the  carrier  from  almost  eveiy  liability  which  he  can 

SmnZ  ?"■,!  T'  '''^'''  '"*'''"  '^^^'  ''<""  ^'•'•^•^  he  cannot  claim 
rm  I"!  '  f°^'"^t^"^^'  '«  his  necessity  for  having  the  ship  in  a 
seaworiJiy  condition  and  properly  officered  and  manned.  It  must  be  admit- 
ted that  most  exporters  seldom  if  ever  read  their  bills  of  lading.  But  this 
m  no  wise  reheves  them  of  that  responsibility  because  the  act  of  accepting 

tl  ft^"t?T  t-T  r,r;"*  *°  ^"  "'  *=°"ditions.  As  will  be  shown  below 
the  fact  that  the  bill  of  ladmg  carrying  tiUe  to  the  goods  enables  the  exporter 


"  m^ 


J       1       ♦' 


to  get  his  money,  probably  makes  this  particular  function  seem  most  import- 
ant to  the  exporter.  At  least  the  original  bill  of  lading  and  one  copy — 
sometimes  two— termed  "negotiable"  are  made  which  carry  the  title  to 
the  goods.  If  any  of  the  negotiable  copies  fulfills  its  function  the  others 
automatically  become  void.  The  reason  for  having  two  will  be  explained 
below.  A  number  of  non-negotiable  copies  of  the  bill  of  lading  are  usually 
made.     These  are  for  files  and  information  purposes  only. 

The  exporter  will  frequently  find  it  advantageous  to  place  his  insurance 
through  an  insurance  broker.  The  cost  to  him  is  no  greater  than  if  he 
handled  the  business  direct  and  the  details  are  left  to  the  care  of  the  broker. 
The  broker  receives  his  fee  for  the  services  rendered  from  the  insurance 
company.  Insurance  for  an  over-seas  shipment  is  necessary  because  of 
the  extra  perils  of  the  sea.  The  full  insurance  policy  is  usually  too  bulky  a 
document  to  be  conveniently  handled  and  consequently  the  insurance  certi- 
ficate is  usually  issued  to  represent  the  policy.  It  carries  all  of  the  obHga- 
tions  that  the  full  policy  carries.  This  document  is  usually^about  the 
size  of  an  ordinary  business  letterhead  and  consequently  is  very  convenient 

We  will  suppose  that  now  the  goods  have  been  packed  and  are  ready 
to  be  delivered  at  the  dock.  When  the  drayman  dehvers  the  goods  at  the 
dock  he  must  present  the  shipping  permit  and  the  export  declaration.  He 
receives  in  return  for  the  goods  a  signed  acknowledgement  from  the  steam- 
ship company  which  is  known  as  the  dock  receipt.  These  are  usually 
prepared  in  advance  by  the  exporter  on  blanks  furnished  by  the  steamship 
company,  the  signature  of  the  steamship  company  making  them  valid. 
The  dock  receipt  simply  states  that  such  and  such  goods  were  received  in 
apparent  good  order  and  condition  from  such  and  such  a  firm.  |Sometimes 
the  dock  receipt  states  certain  terms  and  conditions  according  to  which 
the  goods  were  received.    The  drayman  returns  this  receipt  to  the  exporter. 

The  exporter  can  now  take  the  dock  receipt,  together  with  the|bills 
of  lading  which  he  has  filled  out  on  blanks  furnished  by  the  steamship 


18 


.y 


19 


FOREIGN     TRADE 


company  to  the  steamship  office  where  in  exchange  for  the  dock  receipt 
the  steamship  office  will  give  signature  to  the  bills  of  lading.  The  exporter 
has  now  given  his  goods  into  the  car^  of  the  steamship  company  and  has 
received  m  return  signed  copies  of  the  bills  of  lading  of  which  the  negotiable 
copies  now  represent  the  goods  as  far  as  he  is  concerned.  All  that  remains 
for  him  to  do  IS  to  collect  payment  for  his  goods  sent  abroad. 

In  addition  to  the  documents  mentioned  above  there  is  usually  pre- 
pared now  the  ordinary  commercial  invoice.  A  copy  of  this,  together  with 
a  packing  list  or  memorandum  of  weights  and  measures  of  the  contents 
of  the  various  cases  and  a  copy  of  the  non-negotiable  bill  of  lading  is  usuallv 
forwarded  to  the  importer  to  advise  him  concerning  the  shipment.  It  should 
be  noted  that  none  of  these  papers  can  aid  the  importer  in  obtaining  the  goods 
from  the  steamship  company. 

Two  copies  of  the  foreign  draft  must  now  be  prepared.     These  are 
really  requests  that  the  importer,  on  a  certain  date,  shall  allow  his  own  bank 
m  the  foreign  country  to  draw  on  his  account  for  a  certain  sum  of  money. 
The  copies  of  the  draft,  together  with  the  negotiable  copies  of  the  bill  of 
lading,  insurance  certificates,  consular  invoices,  commercial  invoices,  and 
packing  lists  are  taken  to  the  exporter's  bank.    There  are  usuallv  two  com- 
plete se(^  with  a  third  negotiable  bill  of  lading  required  for  cases  ofemergency 
The  bill   of  ladmg,  commercial   invoice,   insurance  certificate,   and   draft 
are  known  a^  a  commercial  set,  which  represents  from  now  on  the  financial 
end  of  the  transaction.     If  the  exporter  is  well-known,  the  bank  may  be 
willing  to  loan  h.m  money  on  these  documents  while  the  actual  payment 
for  the  goods  is  being  collected.    In  other  words  the  banker  discounts  the 
draft  for  the  exporter.     It  was  this  particular  function  in  which,  as  was 
pointed  out  above  the  professional  export  house  had  an  especial  advantage 
because  they  had  long  established  dealings  with  their  bankers.     It  shouW 
be  noted  that  m  case  the  exporter  has  difficulty  in  discounting  his  drafts 
he  should  call  on  some  of  the  foreign  bankers  who  have  offices  in  New 
York  and  m  some  other  cities.    These  bankers  are  not  permitted  by  law 


'.  {■  ^ 


FOREIGN     TRADE 


to  receive  or  carry  deposit  accounts.     Their  business  is  dealing  in  foreign 
exchange.    The  standing  of  these  bankers  as  a  class  is  beyond  question. 

The  bank  now  has  possession  of  two  sets  of  the  necessary  documents. 
In  the  simple  and  ideal  case,  which  is  all  that  will  be  discussed  here,  they 
are  sent  by  two  separate  mails  to  their  foreign  correspondent  bank.  The 
foreign  bank  will  present  the  documents  to  the  importer  who  would  be 
expected  to  write  the  word  "accepted'*  across  the  face  of  the  draft,  date  it, 
and  sign  his  name  which  would  then  to  all  effects  make  the  document  bmd- 
ing  upon  him  requiring  him  to  pay  the  face  of  the  draft  on  or  before  a  cer- 
tain date.  The  bank  would  then  deliver  the  remainder  of  the  commercial 
set  to  the  importer  who  could  then  obtain  his  goods  from  the  steamship 
company  on  presenting  the  bill  of  lading,  after  which  it  would  remain  for 
him  simply  to  clear  them  through  customs.  When  the  draft  is  paid  by  the 
importer,  the  payment  is  forwarded  to  the  exporter's  bank  in  this  countrj'. 
The  transaction  is  then  complete. 

Mention  has  been  made  of  the  date  on  the  draft  by  which  time  the 
importer  must  make  payment.  This  is  drawn  payable  either  at  sight, 
that  is  at  the  time  the  importer  accepts  the  draft,  or  at  thirty,  sixty  or 
ninety  days  after  the  date  of  the  acceptance  according  to  the  terms  of  the 
draft.  In  case  of  a  new  customer  or  in  case  of  an  unusually  advantageous 
bargain  the  exporter  may  wish  to  get  his  money  immediately,  that  is  to 
receive  payment  for  the  goods  at  the  time  he  delivers  the  documents  at 
his  own  bank.  This  is  done  by  demanding  an  irrevocable  letter  of  credit 
good  at  a  certain  date  and  drawn  on  some  bank  in  this  country.  Here  the 
importer  must  forward  the  foreign  exchange  by  letter  or  cable  and  have 
the  required  sum  to  his  credit  at  the  exporter's  bank.  In  such  a  case  the 
exporter  simply  presents  the  letter  of  credit  at  his  bank  and  receives  in  return 
his  payment  for  the  goods.  It  is  obvious  that  here  the  exporter  receives 
immediately  the  payment  for  his  goods  instead  of  having  to  wait  for  the  time 
to  elapse  during  which  the  documents  may  be  shipped  overseas,  the  time 
on  the  draft  to  expire,  and  the  payment  returned  to  this  country.    Naturally 


fO 


SI 


FOREIGN     TRADE 


it  would  be  very  desirable  for  the  exporter  if  payment  for  his  goods  could 
always  be  made  immediately.  But  foreign  trade  is  not  usually  conducted 
in  this  way,  and  many  Americans  newly  entering  the  export  field  have  had 
to  learn  that  with  reliable  customers  they  must  use  the  time  draft. 


COMBINATIONS  IN  EXPORTING 

Within  the  boundaries  of  the  United  States  corporations  doing  business 
are  controlled  by  a  more  or  less  uniform  set  of  laws.  When,  however,  a 
corporation  attempts  to  do  business  outside  of  the  United  States  it  must 
meet  the  competition  of  other  companies  organized  under  the  laws  of 
other  nations.  The  laws  of  these  foreign  nations  may  permit  practices 
which  are  illegal  here  in  the  United  States.  If  the  differences  in  the  laws 
give  a  commercial  advantage  to  the  business  organizations  of  some  other 
country,  then  it  inevitably  follows  that,  with  other  conditions  equal,  those 
less  favored  must  fail.  A  case  of  this  has  occurred  in  combinations  of  firms 
for  foreign  trade.  Such  combinations  have  been  permitted  and  even  fostered 
by  some  of  the  leading  foreign  nations.  On  the  other  hand  here  in  the 
United  States  such  combinations  have  been  forbidden.  In  order  to  give 
American  corporations  a  fair  chance  to  compete  with  these  foreign  combina- 
tions, the  Webb-Pomerene  Act  was  passed  by  Congress  in  1918.  In  short 
this  act  exempts  combinations  of  corporations  engaged  in  foreign  business 
from  the  penalties  of  the  anti-trust  laws:  the  object  of  the  exemptions  being 
such  as  to  enable  combinations  of  firms  to  meet  the  competition  of  similar 
foreign  organizations.  While  such  combinations  are  no  longer  illegal 
they  are  not  free  from  all  regulation,  the  power  to  control  them  being 
vested  in  the  Federal  Trade  Commission.  The  fact  that  many  firms  have 
filed  requests  for  permission  to  combine  according  to  the  provisions  of  this 
act  shows  that  it  offers  a  valuable  opportunity. 

As  might  be  imagined  the  commercial  advantage  of  these  combinations 
is  in  the  savings  which  can  be  effected:   savings  in  manufacturing  and  in 


n 


\i 


FOREIGN     TRADE 


marketing.  The  goods  are  produced  at  less  cost  due  to  a  standardization 
of  manufacture  and  the  saving  of  competition  between  factories.  They  are 
also  carried  overseas  at  smaller  cost.  In  the  case  of  a  particularly  large 
order,  such  as  materials  for  building  a  railway,  the  saving  appears  not  only 
in  the  manufacturing  but  also  in  the  shipping  of  the  goods.  Possibly  the 
order  may  be  large  enough  to  warrant  the  chartering  of  a  whole  steamer. 
At  any  rate  the  import  expenses  will  probably  be  less  than  would  be  the  case 
if  the  goods  were  sent  by  a  number  of  shipments  from  several  plants.  Again, 
the  combination  benefits  by  having  but  one  large  foreign  sales  organization 
in  place  of  a  number  of  weaker  organizations  which  each  member  of  the 
combination  would  otherwise  be  forced  to  maintain.  Heretofore  com- 
binations of  foreign  buyers  have  been  able  to  play  off  the  individual  Ameri- 
can firms  against  each  other,  resulting  in  destructive  competition.  This 
has  been  overcome  now:  the  American  combination  can  meet  the  foreign 
buyers  on  an  equal  footing. 

IMPORTING 

We  have  traced  a  shipment  of  goods  overseas  from  the  American 
exporter  to  the  importer  abroad.  Our  interest  so  far  has  been  in  the  exporter. 
Let  us  now  turn  to  the  other  end  of  the  game  and  imagine  that  we  are  an 
American  importer. 

We  have  examined  the  methods  by  which  the  American  exporter 
sells  goods  abroad,  namely  through  the  salesman,  exclusive  agent,  branch 
house,  commission  merchant,  manufacturer's  export  agent,  and  export 
merchant.  All  of  these  methods  are,  in  effect,  used  by  the  foreign  exporter 
sellmg  to  the  American  importer.  In  addition  the  importers  use  two  other 
methods  which  are  different  from  those  enumerated:  the  foreign  buyer 
and  the  foreign  (importer's)  branch  house. 

Imported  goods  may  be  roughly  divided  into  two  classes:  staples  and 
specialties.    It  is  chiefly  for  the  purchase  of  this  latter  class  of  goods  that 


28 


FOREIGN  TRADE 


FOREIGN  TRADE 


these  other  two  methods  are  used.  In  the  purchase  of  specialties  such  as 
linen,  dress  goods  or  laces  where  fashion  or  the  pesonal  taste  of  the  buyer 
makes  a  difference,  it  is  obviously  advantageous  to  secure  early  and  selected 
shipments.  These  must  be  placed  in  the  hands  of  the  retailer  as  soon  as 
possible.  Hence  buyers  are  usually  employed  by  large  department  stores 
and  sometimes  by  wholesalers  in  specialties.  The  personal  taste  of  the  buyer 
appears  in  the  goods  that  he  or  she  may  purchase.  Customers  of  the  depart- 
ment stores  of  a  large  city  know  that  in  this  or  in  that  store  they  can  always 
find  an  unusually  attractive  line  of  a  particular  kind  of  goods.  They  little 
realize  that  this  is  true  because  of  the  taste  and  judgment  of  the  buyer 
which  that  store  sends  abroad.  Let  the  buyer  sever  his  connection  with 
that  store,  the  public  will  know  it  within  a  few  months  by  the  changed 
character  of  the  goods  displayed  for  sale. 

The  importer  may  organize  branch  houses  abroad  but  just  as  in  the  case 
of  the  exporter  the  branch  house  plan  of  organization  may  be  too  expensive. 
If  this  is  the  case  buyers  only  are  used.  On  the  other  hand  the  branch 
house  frequently  takes  the  form  simply  of  an  outpost  for  the  importer 
advising  him  in  regard  to  opportunities  or  keeping  him  informed  as  to 
changes  in  fashion.    This  will  tend  to  increase  the  effectiveness  of  the  buyer. 

In  a  previous  section  on  exporting  we  left  the  documents  in  the  hands 
of  the  importer  who  then  had  the  work  of  clearing  his  goods  through  cus- 
toms. Let  us  examine  the  procedure  for  this  in  case  the  importer  is  in  this 
country.  The  required  papers  are  a  negotiable  copy  of  the  bill  of  lading 
and  the  consular  invoice.  If  the  goods  are  valued  at  under  one  hundred 
dollars  the  commercial  invoice  will  do  instead.  In  case  the  importer  does 
not  have  the  consular  invoice,  he  can  use  the  commercial  invoice  and  furnish 
bond  to  present  the  consular  invoice  at  some  later  date.  The  customs 
entry  form,  filled  out  by  the  importer,  must  be  presented  with  the  docu- 
ments just  mentioned.  On  the  entry  form  there  are  spaces  for  the  marks, 
numbers,  value,  and  description  of  the  goods.  This  set  of  documents  is 
presented  to  the  Collector  of  Customs  within  forty-eight  hours  after  the 


»       \ 


♦      « 


•      • 


t        • 


•       « 


vessel  arrives  as  otherwise  the  goods  will  be  sent  to  the  Government  stores. 
Except  in  the  case  of  perishable  goods  or  other  things  requiring  immediate 
delivery,  the  documents  must  not  be  presented  before  the  vessel  arrives. 
The  Collector  estimates  the  amount  of  duty  which  the  importer  pays  as  a 
deposit  and  receives  in  return  a  delivery  permit.  With  this  permit  and  the 
bill  of  lading  the  importer's  truckman  can  get  part  of  the  goods  after  the 
payment  of  the  steamship  freight.  The  customs  inspectors  select  certain 
of  the  goods  for  inspection.  If  not  too  bulky  these  are  sent  to  the  Appraiser's 
Stores  for  examination.  It  should  be  noted  that  the  importer  binds  himself 
not  to  dispose  of  that  part  of  the  goods  he  has  actually  received  until  the 
duty  is  finally  assessed. 

The  appraisers  examine  the  selected  specimens  to  determine  whether 
in  their  opinion  the  value  of  the  goods  agrees  with  the  value  given  on  the 
invoice.  They  also  advise  the  Collector  as  to  whether  they  believe  the 
rate  of  duty  made  in  the  estimate  was  correct.  After  the  Collector  has 
received  the  report  and  the  amount  of  duty  has  been  calculated  the  cashier 
receives  it,  stamps  the  notation  on  the  entry  form,  and  checks  the  delivery 
permit  as  proof  of  receipt  of  payment.  The  importer  can  then  obtain  full 
possession  of  his  goods. 

The  appraisers  may  not  agree  with  either  the  valuation  of  the  goods 
or  the  rate  of  duty.  Changes  increasing  the  valuation  of  the  goods  made 
by  the  appraisers  carry  additional  duties  as  penalties.  Changes  in  the  rate 
of  duty  usually  carry  no  penalty.  Appeals  from  the  decisions  of  the  apprais- 
ers or  Collector  may  be  taken  which  in  rare  cases  may  go  as  high  as  the 
Supreme  Court  of  the  United  States.  It  should  be  noted  that  the  appeal 
must  be  filed  within  ten  days  of  the  notification  of  the  increase  in  the  amount 
of  the  duty. 

If  the  importer  chooses,  goods  may  be  imported  in  bond.  In  this  case 
the  goods  are  taken  directly  from  the  steamer  by  a  licensed  truckman  to 
the  Government  bonded  warehouse.    The  advantage  in  importing  in  this 


24 


.* 


■«M 


I 

i 
i 


M 


FOREIGN     TRADE 


way  is  that  the  importer  does  not  have  to  pay  duty  on  the  goods  until  they 
are  withdrawn  from  the  warehouse.  Duties  are  assessed  at  the  rate  current 
at  the  time  of  the  withdrawal.  Three  years  is  the  maximum  time  that  they 
can  be  kept  in  bond.  Occasionally  an  importer  may  want  to  have  the 
goods  sent  inland  in  bond.  When  this  is  done  the  goods  are  cleared  through 
customs  at  some  inland  city  in  the  same  way  as  described  above. 

A  word  should  be  said  about  the  custom  house  brokers.  These  are  men 
who  serve  the  importer  as  agent  in  clearing  the  importer's  goods  through 
customs.  Because  of  their  familiarity  with  all  the  details  and  technicalities 
of  the  work  they  are  able  to  get  goods  through  customs  in  the  most  efficient 
manner.  The  fee  which  they  receive  for  their  service  is  small.  As  the  nature 
of  their  work  is  confidential,  they  are  required  to  be  licensed  by  the  Secretary 
of  the  Treasury.  The  importer  who  receives  only  an  occasional  shipment 
or  who  wants  to  turn  over  the  detail  of  clearing  a  large  amount  of  goods 
which  are  continually  arriving  to  some  one  else  finds  the  custom  house  broker 
a  very  valuable  aid. 

AGENCIES  IN  THE  PROMOTION  OF  FOREIGN  TRADE 

Agencies  in  the  promotion  of  foreign  trade  may  be  divided  into  two 
general  classes:  those  under  the  direction  of  the  Government  and  those 
under  private  control.  Space  does  not  permit  a  full  discussion  of  the  work 
of  these  various  organizations  so  that  only  a  mere  outline  of  the  work  of 
the  more  important  ones  will  be  given. 

The  Bureau  of  Foreign  and  Domestic  Commerce  is  organized  under 
the  Department  of  Commerce.  While  the  main  office  of  the  Bureau  is  in 
Washington,  there  are  district  and  co-operative  offices  in  a  number  of  cities 
of  the  United  States.  The  Bureau  receives  daily  large  masses  of  material 
from  its  own  agents  at  home  and  abroad  as  well  as  from  the  Commercial 
Attaches,  Consuls  and  Collectors  of  Customs,  who  are  under  the  direction 
of  other  departments  of  the  government.    This  mass  of  material  is  sorted. 


26 


*• 


f   I  ir 


FOREIGN     TRADE 


Some  IS  published  and  some  is  kept  on  file  for  use  in  answer  to  inquiries 
of  busmess  men.  For  instance,  files  are  kept  on  the  tariff  in  various  foreign 
countries,  on  commercial  treaties  and  on  trade  opportunities.  The  Bureau 
publishes  weekly  the  Commerce  Reports  which  give  current  information 
related  to  foreign  commerce.  Its  other  publications  are  issued  in  four 
series  of  pamphlets  which  are  published  at  irregular  intervals.  These 
are  the  Special  Agents  Series,  Tariff  Series,  Special  Consular  Reports  and 
Miscellaneous  Series.  A  catalogue  of  the  pamphlets  in  these  series  can  be 
had  from  any  of  the  offices  of  the  Bureau  or  from  the  Superintendent  of 
Documents  m  Washington.  The  Bureau  daily  answers  many  questions 
in  regard  to  foreign  trade.  Its  service  is  free  and  is  of  vital  importance  to 
every  firm  engaged  in  foreign  trade. 

The  Chamber  of  Commerce  of  the  United  States  of  America  represents 
the  busmess  mterests  of  the  whole  country.  The  membership  consists  of 
local  chambers  of  commerce,  commercial  organizations  and  of  individual 
members.  Only  part  of  its  work  deals  with  foreign  trade.  Located  in 
Washington  it  can  present  the  views  of  the  business  men  of  the  country  to 
Congress.  Its  object  is  to  bring  business  sentiment  to  a  focus  on  the  import- 
ant questions  of  commerce. 

The  National  Association  of  Manufacturers  was  organized  for  the 
promotion  of  the  interests  of  the  manufacturers.     There  is  a  department 
on  foreign  trade  which  carries  on  work  in  respect  to  such  things  as  buyers 
credits,  collections,  publicity  and  information. 

The  American  Manufacturers  Export  Association  is  an  organization 
whose  members  are  almost  all  manufacturers.  Its  object  is  "to  foster  and 
promote  business  and  commercial  relations  between  American  manufacturers 
and  foreign  nations."  This  Association  works  in  co-operation  with  govern- 
ment agencies  for  the  promotion  of  foreign  trade.  It  was  responsible  for 
orgamzmg  the  National  Foreign  Trade  Convention 


27 


A; 


i 


I 


M 


FOREIGN     TRADE 


The  National  Foreign  Trade  Council  grew  out  of  the  Convention  just 
mentioned.  It  is  composed  of  about  fifty  members.  The  object  of  the 
Council  is  to  direct  the  policy  and  development  of  American  foreign  trade. 
The  National  Foreign  Trade  Convention,  held  yearly,  is  now  under  its 
direction. 

APPENDIX 

INDIA  HOUSE  RULES  FOR  F.  O.  B. 

General  recommendations  for  standard  American  export  practice  were 
adopted  as  follows  at  a  conference  held  in  India  House,  New  York,  on 
December  16,  1919,  by  the  National  Foreign  Trade  Council,  Chamber  of 
Commerce  of  the  United  States  of  America,  National  Association  of  Manu- 
facturers, American  Manufacturers'  Export  Association,  Philadelphia  Com- 
mercial Museum,  American  Exporters'  and  Importers'  Association,  Chamber 
of  Commerce  of  the  State  of  New  York,  New  York  Produce  Exchange, 
and  New  York  Merchants'  Association: 

As  the  most  certain  means  of  insuring  unmistakable  clarity  in  terms 
and  conditions  of  sale,  the  conference  voted  to  recommend  to  manufacturers 
and  exporters  that  all  use  of  abbreviated  forms  of  export  price  quotations 
be  abandoned,  and  that  such  terms  be  written  out  in  full. 

The  conference  recognized,  however,  that  this  recommendation  is  not 
likely  to  be  accepted  generally  at  once;  and  therefore,  in  the  hope  of  effecting 
a  simplification  and  standardization  of  American  practice,  it  adopted  the 
following  statement  of  definitions  of  the  abbreviated  forms  in  more  common 
and  general  use  in  the  export  trade.  The  conference  strongly  recommends 
to  manufacturers  and  exporters  that  wherever  abbreviated  forms  of  export 
quotations  are  employed,  the  forms  herein  defined  be  used,  as  far  as  possible, 
to  the  exclusion  of  other  forms. 


i    f 


28 


■/ 


FOREIGN     TRADE 


These  are,  in  their  order,  the  normal  situations  on  which  an  export 
manufacturer  or  shipper  may  desire  to  quote  prices.  It  is  understood  that 
unless  a  particular  railroad  is  specified,  the  property  will  be  delivered  to 
the  carrier  most  conveniently  located  to  the  shipper.  If  the  buyer,  for  the 
purpose  of  delivery,  or  in  order  to  obtain  lower  transportation  charges, 
desires  that  the  goods  be  delivered  to  a  carrier  farther  removed  from  the 
shipper  and  entailing  a  greater  cost  than  delivery  to  the  carrier  most  favor- 
ably situated,  the  carrier  to  which  the  bu;^'er  desires  delivery  of  the  goods 
should  be  named  in  the  quotation.  The  term  "cars  or  lighters,"  as  used 
herein,  is  intended  to  include  river,  lake,  or  coastwise  ships,  canal  boats, 
barges,  or  other  means  of  transportation,  when  so  specified  in  the  quotation! 

PROPER  TERMS  IN  ROUTING 

1.  When  the  price  quoted  applies  only  at  inland  shipping  point  and 
the  seller  merely  undertakes  to  load  the  goods  on  or  in  cars  or  lighters 
furnished  by  the  railroad  company  serving  the  industry,  or  most  conven- 
iently located  to  the  industry,  without  other  designation  as  to  routing, 
the  proper  term  is: 

"F.  O.  B.  (named  piont)."    Under  this  quotation: 

(a)  Seller  must  (1)  place  goods  on  or  in  cars  or  lighters,  (2)  secure 
railroad  bill  of  lading,  (3)  be  responsible  for  loss  and/or  damage  until  goods 
have  been  placed  in  or  on  cars  or  lighters  at  forwarding  point,  and  clean 
bill  of  lading  has  been  furnished  by  the  railroad  company. 

(6)  Buyers  must  (1)  be  responsible  for  loss  and/or  damage  incurred 
thereafter,  (2)  pay  all  transportation  charges,  including  taxes,  if  any,  (3) 
handle  all  subsequent  movement  of  the  goods. 

2.  When  the  seller  quotes  a  price  including  transportation  charges 
to  the  port  of  exportation  without  assuming  responsibility  for  the  goods 
after  obtaining  a  clean  bill  of  lading  at  point  of  origin,  the  proper  term  is: 


29 


I 


« 


FOREIGN     TRADE 


F.  O.  B.  (named  point)  freight  prepaid  to  (named  point  on  the  seaboard).'* 
Under  this  quotation: 

(a)  Seller  must  (1)  place  goods  on  or  in  cars  or  lighters,  (2)  secure 
railroad  bill  of  lading,  (3)  pay  freight  to  named  port,  (4)  be  responsible  for 
loss  and/or  damage  until  goods  have  been  placed  in  or  on  cars  or  lighters 
at  forwarding  point,  and  clean  bill  of  lading  has  been  furnished  by  the 
railroad  company. 

(b)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  incurred 
thereafter,  (2)  handle  all  subsequent  movement  of  the  goods,  (3)  unload 
goods  from  cars,  (4)  transport  goods  to  vessels,  (5)  pay  all  demurrage  and/or 
storage  charges,  (6)  arrange  for  storage  in  warehouse  or  on  wharf  where 
necessary. 

3.  Where  the  seller  wishes  to  quote  a  price,  from  which  the  buyer 
may  deduct  the  cost  of  transportation  to  a  given  point  on  the  seaboard, 
without  the  seller  assuming  responsibility  for  the  goods  after  obtaining  a 
clean  bill  of  lading  at  point  of  origin,  the  proper  term  is: 


se 


"F.  O.  B.  (named  point)    freight   allowed    to    (named   point   on   the 
(aboard)."     Under  this  quotation: 

(a)  Seller  must  (1)  place  goods  on  or  in  cars  or  lighters,  (2)  secure 
railroad  bill  of  lading,  (3)  be  responsible  for  loss  and/or  damage  until  goods 
have  been  placed  in  or  on  cars  or  lighters  at  forwarding  point,  and  clean 
bill  of  lading  has  been  furnished  by  the  railroad  company. 

(6)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  incurred 
thereafter,  (2)  pay  all  transportation  charges  (buyer  is  then  entitled  to  de- 
duct from  the  amount  of  the  invoice  the  freight  paid  from  primary  point 
to  named  port),  (3)  handle  all  subsequent  movement  of  the  goods,  (4) 
unload  goods  from  cars,  (5)  transport  goods  to  vessel,  (6)  pay  all  demurrage 
and/or  storage  charges,  (7)  arrange  for  storage  in  warehouse  or  on  wharf 
where  necessary.  • 


80 


V 


^ 


.if 


FOREIGN     TRADE 


4.  The  seller  may  desire  to  quote  a  price  covering  the  transportation 
of  the  goods  to  seaboard,  assuming  responsibility  for  loss  and/or  damage 
up  to  that  point.    In  this  case,  the  proper  term  is: 

"F.  O.  B.  cars  (naming  point  on  seaboard)."     Under  this  quotation: 

(a)  Seller  must  (1)  place  goods  on  or  in  cars,  (2)  secure  railroad  bill  of 
ladmg,  (3)  pay  all  freight  charges  from  forwarding  point  to  port  on  seaboard, 
(4)  be  responsible  for  loss  and/or  damage  until  goods  have  arrived  in  or  on 
cars  at  the  named  port. 

(6)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  incurred 
thereafter,  (2)  unload  goods  from  cars,  (3)  handle  all  subsequent  movement 
of  the  goods,  (4)  transport  goods  to  vessel,  (5)  pay  all  demurrage  and/or 
storage  charges,  (6)  arrange  for  storage  in  warehouse  or  on  wharf  where 
necessary. 

5.  It  may  be  that  the  goods,  on  which  a  price  is  quoted  covering  the 
transportation  of  the  goods  to  the  seaboard,  constitute  less  than  a  carload 
lot.    In  this  case,  the  proper  term  is: 

"F.  O.  B.  cars  (named  port)  L.  C.  L."  Under  this  quotation: 

(a)  Seller  must  (1)  deliver  goods  to  the  initial  carrier,  (2)  secure 
railroad  bill  of  lading,  (3)  pay  all  freight  charges  from  forwarding  point 
to  port  on  seaboard,  (4)  be  responsible  for  loss  and/or  damage  until  goods 
have  arrived  on  cars  at  the  named  port. 

(6)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  incurred 
thereafter,  (2)  handle  all  subsequent  movement  of  the  goods,  (3)  accept 
goods  from  the  carrier,  (4)  transport  goods  to  vessel,  (5)  pay  all  storage 
charges,  (6)  arrange  for  storage  in  warehouse  or  on  wharf  where  necessary. 

6.  Seller  may  quote  a  price  which  will  include  the  expense  of  transpor- 
tation of  the  goods  by  rail  to  the  seaboard,  including  lighterage.  In  this 
case  the  proper  term  is: 

"F.  O.  B.  cars  (named  port)  lighterage  free."  Under  this  quotaUon: 


81 


■JgM. 


FOREIGN     TRADE 

great  for  ship's  tackle    fsf  mv  .1^1  "^  *'"«'"  "'  ^oods  is  too 

lighterage  charger      '  ^^  '^  "^      '  '*"""''''*«"  ''"'^  """'^^  <=harges.  except 

aionide'"':;:"::  '::Lfard  t^r  ^  "r  rr^  ^^"^'^^^  °f  "■«  «'-'^ 

case  the  proper  t«mT  '"'  °^  "^  '"*^'"S  '^l^'^-     I"  this 

"F.  A.  S.  vessel  (named  port)."    Under  this  quotation: 

(a)     Seller  must  (1)  transport  goods  to  seaboard    (9^  =.  j    • 

warehouse  or  on   wharf  if  n  Jl„„  .      f '"'°*'^"'  («)  store  goods  in 

provision  of  shipping  fl^iiierrsXr"^  buyer's  obhgation  includes 

lighter  or  on  the'^haVT4tbe  rlins  We  for  iS       Tt  ^"^^  ""'^^  '»  ^ 
have  been  delivered  al^n^ide T^  o^  ^n^^^^^^^^^ 

and  for  instaLTf  hit  I7T'"^  '"'  '°^^  ""^/^  ^-"^^  thereafter, 

^eofhoistinggi2iri:il:LTirorg=-^^^^^^^^ 

port.    In  thfs  ctZ  pro^rTi  T"  ""^  """^-^  ^^^';'  "^  --<^ 
"F.  O.  B.  vessel  (named  port)."  Under  this  quotaUon- 

on  biid  S  vLry^'LT  "*"  tT  T.""^  '"  "'-'"«  «-ds  actually 
W  been  plZto^i^J^t^J^'  ^"  '""  ''"^'^"^  '^''""'^^  -""  «-l' 


FOREIGN     TRADE 


i  {/■ 


(b)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  thereafter, 
(2)  handle  all  subsequent  movement  of  the  goods. 

9.  The  seller  may  be  ready  to  go  further  than  the  delivery  of  his  goods 
upon  the  overseas  vessel  and  be  willing  to  pay  transportation  to  a  foreign 
point  of  delivery.    In  this  case  the  proper  term  is: 

"C.  &  F.  (named  foreign  port)."     Under  this  quotation: 

(a)  Seller  must  (1)  make  freight  contract  and  pay  transportation 
charges  sufficient  to  carry  goods  to  agreed  destination,  (2)  delivery  to  buyer 
or  his  agent  proper  bills  of  lading  to  the  agreed  destination,  (3)  be  responsible 
for  loss  and/or  damage  until  goods  have  been  delivered  alongside  the  ship 
and  clean  ocean  bill  of  lading  obtained  (seller  is  not  responsible  for  delivery 
of  goods  at  destination). 

(6)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  thereafter 
and  must  take  out  all  necessary  insurance,  (2)  handle  all  subsequent  move- 
ment of  the  goods,  (3)  take  delivery  and  pay  costs  of  discharge,  lighterage, 
and  landing  at  foreign  port  of  destination  in  accordance  with  bill  of  lading 
clauses,  (4)  pay  foreign  customs  duties  and  wharfage  charges,  if  any. 

10.  The  seller  may  desire  to  quote  a  price  covering  the  cost  of  the  goods, 
the  marine  insurance  on  the  goods,  and  all  transportation  charges  to  the 
foreign  point  of  delivery.    In  this  case,  the  proper  term  is: 

"C.  I.  F.  (named  foreign  port)."    Under  this  quotation: 

(a)  Seller  must  (1)  make  freight  contract  and  pay  freight  charges 
sufficient  to  carry  goods  to  agreed  destination,  (2)  take  out  and  pay  for  neces- 
sary marine  insurance,  (3)  be  responsible  for  loss  and/or  damage  until 
goods  have  been  delivered  alongside  the  ship,  and  clean  ocean  bill  of  lading 
and  insurance  poHcy  have  been  delivered  to  the  buyer  or  his  agent.  (Seller 
is  not  responsible  for  the  delivery  of  goods  at  destination,  nor  for  payment 
by  the  underwriters  of  insurance  claims),  (4)  provide  war-risk  insurance 
where  necessary  for  buyer's  account. 


32 


.'f 


■^^r 


itfMM 


FOREIGN     TRADE 


(6)  Buyer  must  (1)  be  responsible  for  loss  and/or  damage  thereafter, 
and  must  make  all  claims  to  which  he  may  be  entitled  under  the  insurance 
directly  on  the  underwriters,  (2)  take  delivery  and  pay  costs  of  discharge, 
lighterage,  and  landing  at  foreign  ports  of  destination  in  accordance  with 
bill  of  lading  clauses,  (3)  pay  foreign  customs  duties  and  wharfage  charges, 
if  any. 

Explanations  of  abbreviations  are  given  below: 

F-  O*  B Free  on  board 

■f''  A.  S Free  alongside  ship 

C  &  F Cost  and  freight 

C  I.  F Cost,  insurance,  and  freight 

L.  C.  L Less  than  carload  lot 


GENERAL  RECOMMENDATIONS 

In  reaching  the  conclusions  set  forth  in  this  statement  the  conference 
considered  the  fact  that  there  are,  in  more  or  less  common  use  by  manu- 
facturers in  difiFerent  parts  of  the  United  States,  numerous  variations  of 
these  abbreviations,  practically  all  of  which  are  employed  to  convey  meaning 
substantially  synonymous  with  those  here  defined.  For  instance,  there 
are  manufacturers  who  quote  "F.  O.  B.  cars,"  "F.  O.  B.  works,"  "F.  O.  B. 
mill,"  or  *'F.  O.  B.  factory,"  meaning  that  the  seller  and  buyer  have  the 
same  responsibilities  as  those  set  forth  in  Section  L  The  conference  con- 
sidered all  those  variations  and  determined  to  recommend  the  use  of  *'F.  O. 
B.  (named  point),"  a^  "F.  O.  B.  Detroit,"  "F.  O.  B.  Pittsburgh,"  etc. 
Of  the  considerable  number  of  these  abbreviations  which  are  used  in  the 
United  States,  the  conference  felt  that  the  form  "F.  O.  B.  (named  point)" 
is  most  widely  used  and  understood,  and,  therefore,  should  be  adopted  as 
the  standard  of  practice. 


0 


FOREIGN     TRADE 


The  chief  purpose  of  the  conference  is  to  simplify  and  standardize 
American  practice,  and  to  that  end  it  urges  manufacturers  and  exporters 
to  cease  the  use  of  synonymous  abbreviations  and  quote  habitually  in  the 
terms  here  recommended,  just  as  far  as  these  terms  will  cover  the  price 
conditions  which  it  is  desired  to  arrange  with  the  buyer. 

Variations  of  the  abbreviations  recommended  in  other  sections  also  are 
in  more  or  less  common  use  throughout  the  United  States.  The  recommen- 
dations of  the  conference  set  forth  above  apply  to  them  with  the  same  force 
as  to  those  cited  under  section  1. 

Manufacturers  and  exporters  are  urged  to  bear  in  mind  tliat  the  con- 
fusion and  controversies  which  have  arisen  have  sprung  in  part  from  the 
use  of  an  excessive  number  of  abbreviated  forms  with  substantially  similar 
meanings,  as  well  as  from  the  use  of  abbreviations  in  a  sense  different  from 
their  original  meanings,  or  in  an  application  not  originally  given  them  and 
different  from  the  sense  or  application  understood  by  foreign  buyers. 

In  simplified  and  standardized  practice  lies  the  best  hope  of  reducing 
confusion  and  avoiding  controversy. 

The  conference  urges  upon  manufacturers  and  exporters  the  ver>^  great 
importance  at  all  times  of  making  their  intention  in  whatever  quotations 
they  employ  so  thoroughly  clear  as  to  be  impossible  of  misunderstanding 
or  misinterpretation.  It  is  much  better  to  take  the  time  and  space  at  the 
outset  to  make  the  quotation  clearly  understood,  than  to  be  compelled  in 
the  end  to  go  through  vexatious  controversy,  or  litigation,  which  costs 
not  only  time  and  expense  but  customers  as  well.  Misunderstandings 
can  best  be  avoided  if  the  seller  will  formulate  a  written  statement  of  the 
general  conditions  under  which  his  sales  are  to  be  made,  and  will  see  that 
the  foreign  buyer  possesses  these  terms  of  sale  when  considering  a  quotation. 
The  items  which  may  be  included  in  such  a  statement  deal  with  delivery, 
delays,  partial  shipments,  shipping  instructions,  inspection,  claims,  damage,' 
and  payment.  If  all  contingencies  are  thus  covered  by  carefully  considered 
conditions  of  sale,  disputes  will  largely  be  prevented. 


36 


!t 


FOREIGN     TRADE 


CONFUSION  RESULTING  FROM  CERTAIN  PRACTICES 


•> 


«( 


The  quotation  "F.  O.  B.  (named  port),"  as  "F.  O.  B.  New  York, 
F.  O.  B.  New  Orleans,"  "F.  O.  B.  San  Francisco,"  is  often  used  by  inland 
producers  and  distributors  to  mean  merely  delivery  of  the  goods  at  railway 
terminal  at  the  port  named.  This  abbreviation  originated  as  an  export 
quotation  and  had  no  application  to  inland  shipments.  It  was  used  only  to 
mean  delivery  of  the  goods  upon  an  overseas  vessel  at  the  port  named. 
That,  in  fact,  is  the  meaning  universally  given  to  the  phrase  among  foreign- 
ers, and  is  the  meaning  which  the  best  practice  among  exporters  requires 
it  invariably  to  have.  But  because  of  the  confusion  which  has  arisen 
through  the  use  of  that  form  with  a  different  meaning  by  inland  producers 
and  distributors,  and  in  the  interest  of  unmistakable  clarity,  the  conference 
most  strongly  urges  the  invariable  use  by  American  manufacturers  and  ex- 
porters of  the  form  "F.  O.  B.  vessel  (named  port)."  This  adds  only  one 
word  to  the  abbreviated  form  and  has  the  great  advantage  that  it  can  not 
be  misunderstood.  It  also  avoids  the  difficulty  which  might  arise  among 
foreigners  not  always  well  versed  in  American  geography,  through  con- 
fusing an  inland  forwarding  point  with  a  shipping  port  at  seaboard. 

The  conference  calls  attention  to  the  fact  that  in  selling  "F.  A.  S. 
vessel"  manufacturers  and  exporters  should  be  careful  to  have  their  agree- 
ments with  buyers  cover  explicitly  the  question  of  responsibility  for  loss 
after  goods  have  been  delivered  on  the  wharf  or  alongside  the  vessel  and 
before  they  are  actually  loaded  on  the  ship.  There  is  no  generally  established 
practice  on  this  point.  The  recommendation  of  the  conference  in  the  defini- 
tions of  responsibility  under  section  7  sets  up  a  rule  which  it  is  hoped  will 
lead  to  the  establishment  of  a  standard  practice. 

It  is  understood  that  the  provision  of  lighterage  covered  in  several 
of  these  recommendations  is  only  within  the  usual  free  lighterage  limits 
of  the  port,  and  that  where  lighterage  outside  such  limits  is  required,  it 
is  for  buyer's  account. 


36 


t. 


FOREIGN     TRADE 


IMPORTANCE  OF  WEIGHT  QUOTATIONS 

In  order  to  avoid  confusion  in  another  particular,  attention  is  called 
to  the  care  which  must  be  exercised  in  all  cases  in  making  weight  quota- 
tions. The  net  ton,  the  gross  ton,  and  the  metric  ton  all  differ  in  weight. 
Similarly  there  is  a  variation  in  the  use  of  the  term  "hundredweight"  to 
mean  either  100  pounds  or  112  pounds.  It  is,  therefore,  not  sufficient  to 
quote  a  price  per  "ton"  or  per  "hundredweight."  Instead  the  conference 
recommends  the  use  of  the  terms  "ton  of  2,000  pounds,"  "ton  of  2,240 
pounds,"  or  "ton  of  2,204  pounds,"  etc.,  whichever  is  intended. 

It  is  also  important  to  note  that  a  carload  lot  in  the  United  States  means 
the  quantity  of  the  particular  commodity  in  question  necessary  to  obtain 
the  carload  freight  rate  for  transportation  on  American  railways.  This 
quantity  varies  according  to  the  commodity  and  also  varies  in  different 
parts  of  the  country.  Certain  commodities  being  more  bulky  than  others, 
the  minimum  carload  for  them  is  less  than  for  heavier  products  occupying 
less  space.  The  load  required  may  range  anywhere  from  12,000  to  90,000 
pounds.  Consequently,  it  is  important,  when  quoting  prices  apphcable 
to  carload  lots,  to  so  state  and  to  specify  the  minimum  weight  necessary 
to  make  a  carload  lot  of  the  particular  commodity  for  the  particular  ship- 
ment in  question. 

The  conference  points  out  that  in  quoting  "C.  &  F."  or  "C.  I.  F. 
manufacturers  and  exporters  moving  large  quantities  of  material  by  one 
vessel  should  be  careful  to  ascertain  in  advance  the  buyer's  capacity  to  take 
delivery.  This  because,  under  these  terms  and  as  a  condition  of  making 
the  freight  rate,  transportation  companies  may  require  a  certain  rate  of 
discharge  per  day,  and  that  rate  of  discharge  might  be  in  excess  of  the 
buyer's  capacity  to  take  delivery.  In  such  event  an  adjustment  with  the 
transportation  company  would  be  necessary,  which  might  affect  the  freight 
rate  and  consequently  the  price  to  be  quoted. 

SPECIAL  PROVISIONS  AND  RECOMMENDATIONS 

The  conference  also  strongly  urges  shippers  clearly  to  understand 


87 


»» 


r 


FOREIGN     TRADE 


the  provisions  of  their  insurance  protection  on  all  foreign  sales,  irrespective 
of  the  general  terms  used  thereon.  In  almost  all  cases  it  should  he  possible, 
when  making  shipments  by  steamer,  to  obtain  insurance  cover  giving  full 
protection  from  primary  shipping  point  to  designated  seaport  delivery, 
and/or  foreign  port  delivery.  As  ordinary  marine  insurance  under  F.  P.  A. 
conditions,  i.e.,  free  of  particular  average,  gives  no  protection  against 
deterioration  and/or  damage  to  the  merchandise  itself  while  in  transit, 
when  caused  by  the  recognized  hazards  attending  such  risks,  shippers  should 
endeavor  in  all  cases  to  obtain  insurance  under  W.  P.  A.  (S.  P.  A.)  con- 
ditions, i.e.,  with  particular  average  (subject  to  particular  average),  when  in 
excess  of  the  customary  franchise  of  three  per  cent  to  five  per  cent.  Under 
such  form  of  insurance,  underwriters  will  be  called  upon  to  pay  claims  for 
damages  when  these  exceed  the  stipulated  franchise. 

The  conference  points  out  that,  inasmuch  as  fees  for  consular  invoices 
and  similar  items  are  arbitrary  charges  fixed  by  foreign  governments, 
they  are  not  included  in  the  terms  of  C.  &  F.  or  C.  I.  F.  quotations,  and  it  is 
part  of  the  duty  of  the  buyer  to  meet  them. 

Finally,  the  conference  strongly  recommends,  as  a  most  effective 
measure  of  simplification,  the  general  practice  of  quoting  for  export,  as  far 
as  possible,  either  *'F.  A.  S.  vessel,"  "F.  O.  B.  vessel,"  or  "C.  I.  F."  Con- 
centration on  this  small  list,  all  of  which  terms  are  readily  understood 
abroad  and  are  diflScult  of  misinterpretation,  will,  it  is  felt,  be  markedly 
influential  in  avoiding  confusion  and  controversy. 

The  conclusions  and  definitions  set  forth  above  are  the  recommenda- 
tions of  a  conference  which  was  composed  of  representatives  of  nine  of  the 
great  commercial  organizations  of  the  United  States  interested  in  foreign 
trade.  Not  all  have  as  yet  the  force  of  law  or  long-established  practice; 
but  it  is  the  hope  and  expectation  of  the  conference  that  these  recommenda- 
tions will  receive  such  adherence  on  the  part  of  American  producers  and  dis- 
tributors as  to  make  them  in  fact  the  standard  American  practice.  And  it 
is,  therefore,  expected  that  in  due  time  they  will  receive  the  sanction  of 
legal  authority. 


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